INTELLINETICS, INC.

Previous wording

The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Any forward-looking statements in this discussion and analysis should be read in conjunction with the information set forth in “Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three and nine-month periods ended September 30, 2025 as the third quarter 2025 and the nine-month period 2025 respectively, and to the three and nine-month periods ended September 30, 2024 as the third quarter 2024 and the nine-month period 2024.

Current wording

The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and notes thereto included in Part I, Item 1, “Financial Statements,” of this Quarterly Report on Form 10-Q, and with the condensed consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Any forward-looking statements in this discussion and analysis should be read in conjunction with the information set forth in “Note Regarding Forward-Looking Statements” elsewhere herein. In this Quarterly Report, we sometimes refer to the three month period ended March 31, 2026 as the first quarter 2026, and to the three month period ended March 31, 2025 as the first quarter 2025.

Previous wording

We are a document services and software solutions company serving both the small-to-medium business and governmental sectors with their digital transformation and process automation initiatives. Our digital transformation products and services are provided through two reporting segments: Document Management and Document Conversion. Our Document Management segment consists primarily of solutions involving our software platform, allowing customers to capture and manage their documents across operations such as scanned hard-copy documents and digital documents including those from Microsoft Office 365, digital images, audio, video and emails. Our Document Conversion segment provides assistance to customers as a part of their overall document strategy to convert documents from one medium to another, predominantly paper to digital, including migration to our software solutions, as well as micrographics conversions and long-term storage and retrieval services. Our solutions create value for customers by making it easy to connect business-critical documents to the people who need them by making those documents easy to find and access, while also being secure and compliant with the customers’ audit requirements. Solutions are sold both directly to end-users and through resellers.

Current wording

We are a document services and software solutions company serving both the small-to-medium business and governmental sectors with their digital transformation and process automation initiatives. Our digital transformation products and services are provided through two reporting segments: Software and Document Services. Our Software segment consists primarily of solutions involving our software platform, allowing customers to capture and manage their documents across operations such as scanned hard-copy documents and digital documents including those from Microsoft Office 365, digital images, audio, video and emails. Our Document Services segment provides assistance to customers as a part of their overall document strategy to convert documents from one medium to another, predominantly paper to digital, including migration to our software solutions, as well as micrographics conversions and long-term storage and retrieval services. Our solutions create value for customers by making it easy to connect business-critical documents to the people who need them by making those documents easy to find and access, while also being secure and compliant with the customers’ audit requirements. Solutions are sold both directly to end-users and through channel partners.

Previous wording

Our customers use our software by one of two methods: purchasing our software and installing it onto their own equipment, which we refer to as a “premise” model, or licensing and accessing our platform via the Internet, which we refer to as a “software as a service” or “SaaS” model and also as a “cloud-based” model. Licensing of our software through our SaaS model has become increasingly popular among our customers, especially in light of the increased deployment of remote workforce policies and is a key ingredient in our revenue growth strategy. Our SaaS products are hosted with Amazon Web Services, Expedient, and Corespace, providing our customers with reliable hosting services that we believe are consistent with industry best practices in data security and performance.

Current wording

Our customers use our software by one of two methods: purchasing our software and installing it onto their own equipment, which we refer to as an “on-premise” model, or licensing and accessing our platform via the Internet, which we refer to as a “software as a service” or “SaaS” model and also as a “cloud-based” model. Licensing of our software through our SaaS model has become increasingly popular among our customers, especially in light of the increased deployment of remote workforce policies, and is a key ingredient in our revenue growth strategy. Our SaaS products are hosted with leading third-party cloud infrastructure providers, including Amazon Web Services and other U.S.-based data center providers, delivering reliable hosting services consistent with industry best practices in data security and performance.

Previous wording

We operate a U.S.-based business with concentrated sales to the State of Michigan for our Document Conversion segment, complemented by our diverse set of document management software solutions and services. We hold or compete for leading positions regionally in select markets and attribute this leadership to several factors including the strength of our brand name and reputation, our comprehensive offering of innovative solutions, and the quality of our service support. Net growth in sales of software as a service in recent years reflects market demand for these solutions over traditional sales of on-premise software. We expect to continue to benefit from our select niche leadership market positions, innovative product offerings, growing customer base, and the impact of our sales and marketing programs. Examples of these programs include identifying and investing in growth and expanded market penetration opportunities, more effective products and services pricing strategies, demonstrating superior value to customers, increasing our sales force effectiveness through improved guidance and measurement, and continuing to optimize our lead generation and lead nurturing processes.

Current wording

We operate a U.S.-based business with concentrated sales to the State of Michigan for our Document Services segment, complemented by our diverse set of document management software solutions and services. We hold or compete for leading positions regionally in select markets and attribute this leadership to several factors including the strength of our brand name and reputation, our comprehensive offering of innovative solutions, and the quality of our service support. Net growth in sales of software as a service in recent years reflects market demand for these solutions over traditional sales of on-premise software. We expect to continue to benefit from our select niche leadership market positions, innovative product offerings, growing customer base, and the impact of our increased spending in sales and marketing programs. Examples of these programs include identifying and investing in growth and expanded market penetration opportunities, more effective products and services pricing strategies, demonstrating superior value to customers, increasing our sales force effectiveness through improved guidance and measurement, and continuing to optimize our lead generation and lead nurturing processes.

Previous wording

There has been no material change during the nine-month period 2025 to the major qualitative and quantitative factors we consider in the evaluation of our operating results as set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —How We Evaluate our Business Performance and Opportunities” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

Current wording

There has been no material change during the first quarter 2026 to the major qualitative and quantitative factors we consider in the evaluation of our operating results as set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations —How We Evaluate our Business Performance and Opportunities” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025.

Previous wording

Below are our key financial results for the third quarter 2025 (consolidated unless otherwise noted):

Current wording

Below are our key financial results for the first quarter 2026 (consolidated unless otherwise noted):

Previous wording

Our overall performance depends on economic conditions, and the level to which we can implement our growth plans will be due in part to continued growth in the US economy and stability of state and local governmental spending in the US. We do not have direct risk exposure to federal spending levels, but we could face exposure indirectly if federal spending reductions have a corresponding effect on state and local budgets, particularly in the K-12 Education sector. Our performance will also continue to be affected by uncertainty with respect to wage inflation, as well as slowing-to-modest global growth rates.

Current wording

Our overall performance depends on economic conditions, and our continuing growth will be due in part to continued growth in the US economy and stability of state and local governmental spending in the US. We do not have direct risk exposure to federal spending levels, but we could face exposure indirectly if federal spending reductions have a corresponding effect on state and local budgets, particularly in the K-12 Education sector. Our performance will also continue to be affected by any increased wage inflation, as well as modest GDP growth rates.

Previous wording

Volatility from increased trade protectionism is likely to have a minimal direct impact on us because we consume relatively little in raw materials. However, we have customers in industries that have been affected, such as homebuilding and construction. Additionally, the homebuilding and construction industries continue to be affected by a higher interest rate environment. Industry-specific or macroeconomic downturns affected and could continue to affect our customers’ and potential customers’ budgets for technology procurement and continue to stall our growth plans. Absent further economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives to grow our customer base, we believe in the strength of our brand and our focus on our strategic priorities.

Current wording

Volatility from international conflicts and trade protectionism is likely to have a minimal direct impact on us because we consume relatively little in raw materials. However, we have customers in industries that are likely to be affected, such as homebuilding and construction. Any industry-specific or macroeconomic downturn could affect our customers’ and potential customers’ budgets for technology procurement and stall our growth plans. However, absent economic disruptions, and based on the current trend of our business operations and our continued focus on strategic initiatives to grow our customer base, we believe in the strength of our brand and our focus on our strategic priorities.

Previous wording

Our operating results have fluctuated significantly in the past and are expected to continue to fluctuate in the future due to a variety of factors, in addition to economic conditions, that are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Due to all these factors and the other risks discussed in Part I, Item IA, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our past results of operations should not be relied upon as an indication of our future performance. Comparisons of our operating results with prior periods is not necessarily meaningful or indicative of future performance.

Current wording

Our operating results have fluctuated significantly in the past and are expected to continue to fluctuate in the future due to a variety of factors, in addition to economic conditions, that are discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Uncertainties, Trends, and Risks that can cause Fluctuations in our Operating Results” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. Due to all these factors and the other risks discussed in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, our past results of operations should not be relied upon as an indication of our future performance. Comparisons of our operating results with prior periods is not necessarily meaningful or indicative of future performance.

Previous wording

We have two reportable segments: Document Management and Document Conversion. These reportable segments are discussed above under “Company Overview.”

Current wording

We have two reportable segments: Software and Document Services. These reportable segments are discussed above under “Company Overview.”

Previous wording

The following table sets forth our revenues by revenue source and segment for the periods indicated:

Current wording

The following tables sets forth our revenues by revenue source and segment for the periods indicated:

Previous wording

We provide access to our software solutions as a service, accessible through the internet. Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support. Revenues from the sale of software as a service, which are reported as part of our Document Management segment increased by $204,311, or 14.6%, in the third quarter 2025 compared to the third quarter 2024 and increased by $517,840, or 12.3% in the nine-month period 2025 compared to the nine-month period 2024. This increase was primarily the result of new payables automation customers.

Current wording

We provide access to our software solutions as a service, accessible through the internet. Our customers typically enter into our software as a service agreement for periods of one year or more. Under these agreements, we generally provide access to the applicable software, data storage and related customer assistance and support. Revenues from the sale of software as a service, which are reported as part of our Software segment increased by $1,678, or 0.1% in the first quarter 2026 compared to 2025. Higher than usual customer churn nearly offset normal growth, across both YellowFolder and IntelliCloud solutions, including an individually significant IntelliCloud customer who implemented a new ERP system and no longer required our solution.

Previous wording

Professional services revenues primarily consist of revenues from document scanning and conversion services, plus consulting, discovery, training, and advisory services to assist customers with document management needs. These revenues include arrangements that do not involve the sale of software. Of our professional services revenues during the third quarter 2025 and nine-month period 2025, our Document Conversion operations contributed $1,783,285 and $5,664,304, respectively, and our Document Management operations contributed $98,690 and $275,605, respectively. Our overall professional services revenues decreased by $731,589, or 28.0%, in the third quarter 2025 compared to the third quarter 2024 and decreased by $1,836,403, or 23.6%, in the nine-month period 2025 compared to the nine-month period 2024. This decrease is the result of reduced scanning projects in our Document Conversion segment, due to timing of projects, which experienced an unusually low ebb in backlog that corresponded with the expiry of our prior contract with our largest customer, prior to the renewal on June 1, 2025. We have since taken orders to refill the backlog and expect production to begin to ramp up back to more historical levels in Q4 2025.

Current wording

Professional services revenues primarily consist of revenues from document scanning and conversion services, plus consulting, discovery, training, and advisory services to assist customers with Software needs. These revenues include arrangements that do not involve the sale of software. Of our $1,850,163 in professional services revenues during the first quarter 2026, $1,815,522 was derived from our Document Services operations and $34,641 was derived from our Software operations. Our overall professional services revenues decreased by $308,152, or 14.3%, in the first quarter 2026 compared to 2025. This decrease is the result of continued reduced scanning projects in our Document Services segment.

Previous wording

The following table sets forth our cost of revenues, by revenue source and segment, for the periods indicated:

Current wording

The following tables sets forth our cost of revenues by revenue source and segment for the periods indicated:

Previous wording

Cost of professional services consists primarily of compensation for employees performing the document conversion services, compensation of our software engineers and implementation consultants and related third-party costs. Cost of professional services during the third quarter 2025 decreased by $372,876, or 25.0%, from the third quarter 2024 and decreased in the nine-month period 2025 by $964,768, or 23.1%, from the nine-month period 2024. The decrease in cost of sales was in line with the decrease in revenues, driven by our Document Conversion segment. Gross margins related to both consulting services in Document Management and digital transformation services in Document Conversion may vary widely, depending upon the nature of the project and the amount of labor required to complete a project, but remained stable for the periods reported, except for the third quarter 2025, where a significant project delivered unusually low margins due to atypical parameters which were not scoped correctly. Our gross margins in professional services decreased to 40.5% in the third quarter 2025 compared to 42.9% in the third quarter 2024 and slightly decreased to 45.9% during the nine-month period 2025 compared to 46.3% in the nine-month period 2024.

Current wording

Cost of professional services consists primarily of compensation for employees performing the Document Services division conversion services, as well as compensation of our software engineers and implementation consultants, and related third-party costs. Cost of professional services increased in the first quarter 2026 by $29,443, or 2.7% over 2025, due to lower margin projects requiring more labor. Further, while there were fewer Software division projects in the first quarter 2026 than 2025, the impact was not material to the overall cost of revenues. On a consolidated basis, our gross margin for professional services decreased to 39.9% during the first quarter 2026 compared to 49.9% in 2025. Gross margins related to consulting services in Software and Document Services (ranging from scanning to micrographics conversion) may vary widely, depending upon the nature of the project and the amount of labor required to complete a project.

Previous wording

We have financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from public and private sales of equity. Since 2012, we have raised a net total of approximately $23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all have been repaid as of June 18, 2025.

Current wording

We have historically financed our operations primarily through a combination of cash on hand, cash generated from operations, borrowings from third parties and related parties, and proceeds from sales of equity. Since 2012, we have raised a net total of approximately $23.1 million in cash through issuances of equity securities and a further $5.0 million in cash through issuances of debt securities, of which all have been repaid as of June 18, 2025.

Previous wording

In recent years we engaged in several actions that significantly improved our liquidity and cash flows, including (i) effective June 1, 2025 through May 31, 2030, securing a renewal contract with our largest customer, (ii) on May 28, 2025, commencing an at-the-market offering, discussed below, and (iii) repaying all of our debt securities as of June 18, 2025.

Current wording

In recent years we engaged in several actions that significantly improved our liquidity and cash flows, including (i) effective June 1, 2025 through May 31, 2030, securing a renewal contract with our largest customer, (ii) on May 28, 2025, commencing an at-the-market offering, discussed below, (iii) repaying all of our debt securities as of June 18, 2025, and (iv) on February 16, 2026, securing a line of credit through JPMorgan Chase Bank, N.A. (“JPMorgan Chase”) in the amount of $1 million, as discussed in more detail below.

Previous wording

At September 30, 2025, we had $3.2 million in cash and cash equivalents and a working capital deficit of $0.1 million, of which the largest liability was $3.6 million in deferred revenues. Additionally, at September 30, 2025 and December 31, 2024 we had approximately $0.7 million and $1.3 million, respectively, in unbilled accounts receivable. Due to certain customer terms regarding acceptance for certain projects, we have a number of projects for which all of the document conversion work is completed, and the associated revenue has been recognized, but we are unable to invoice until the customer has received and approved the images. The unbilled accounts receivable balance is also affected by the timing of completion of major projects. Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash flow needs for at least the next 12 months. However, our future cash resources and capital requirements may vary materially from those now planned.

Current wording

At March 31, 2026, we had $2.1 million in cash and cash equivalents, net working capital deficit of $0.5 million, which includes $2.9 million in deferred revenues. Based on our current plans and assumptions, we believe our capital resources, including our cash and cash equivalents, along with funds expected to be generated from our operations and potential financing options, will be sufficient to meet our anticipated cash flow needs for at least the next 12 months, including to satisfy our expected working capital needs and our capital and debt service commitments over that period.

Previous wording

We maintain an effective registration statement (the “Registration Statement”) covering up to $12.9 million of common stock, warrants, and units. The Registration Statement includes a prospectus covering the offer, issuance and sale of up to $10.0 million in our common stock from time to time in “at-the-market offerings” pursuant to an At the Market Agreement (the “ATM Program”) with Lucid Capital Markets, LLC (“Lucid”) as our sales agent. We have sold 139,945 and 5,993 shares of our common stock pursuant to the ATM Program during the second and third quarters 2025, respectively, and received aggregate net proceeds totaling $1,621,325. As of the filing date of this Quarterly Report, 2025, approximately $8.2 million remained available under the ATM Program.

Current wording

We maintain an effective registration statement covering up to $12.9 million of common stock, warrants, and units. The registration statement includes a prospectus covering the offer, issuance and sale of up to $10.0 million in our common stock from time to time in “at-the-market offerings” pursuant to an At the Market Agreement (the “ATM Program”) with Lucid Capital Markets, LLC as our sales agent. We sold no shares during the first quarter 2026 or 2025. We have sold 145,938 shares of our common stock pursuant to the ATM Program during the full year 2025, and received aggregate net proceeds totaling $1,621,325. As of the filing date of this Quarterly Report, approximately $8.2 million remained available under the ATM Program.

Previous wording

Net cash provided by operating activities during the nine-month period 2025 was $1,463,711, primarily attributable to the net income adjusted for non-cash expenses of $2,198,402, a decrease in operating assets of $678,393 and an increase in operating liabilities of $251,836. Net cash provided by operating activities during the nine-month period 2024 was $3,721,943, primarily attributable to the net income adjusted for non-cash expenses of $2,273,225, a decrease in operating assets of $780,011 and an increase in operating liabilities of $1,161,221.

Current wording

Net cash used in operating activities during the first quarter 2026 was $228,433, primarily attributable to the net loss adjusted for non-cash expenses of $604,870, a decrease in operating assets of $44,793 and an increase in operating liabilities of $299,757. Net cash used in operating activities during the first quarter 2025 was $27,053, primarily attributable to the net loss adjusted for non-cash expenses of $907,979, an increase in operating assets of $29,841 and a decrease in operating liabilities of $177,626.

Previous wording

Net cash used in investing activities in the nine-month period 2025 was $677,868, including $344,075 in capitalized software. Net cash used in investing activities in the nine-month period 2024 was $695,359, including $302,396 in capitalized software.

Current wording

Net cash used in investing activities in the first quarter 2026 was $203,665, including $178,700 related to capitalized internal use software. Net cash used in investing activities in the first quarter 2025 was $223,934, including $102,854 related to capitalized internal use software.

Previous wording

Our critical accounting policies and estimates are set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. There were no material changes to our critical accounting policies and estimates during the third quarter 2025.

Current wording

Our critical accounting policies and estimates are set forth in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There were no material changes to our critical accounting policies and estimates during the first quarter 2026.